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Financial Advice

June 17, 2021
admin
In Financial Advice, Financial Planning, Latest Updates, Money, Superannuation, Tax

Salary packaging – worth the sacrifice

Salary packaging - worth the sacrifice

The principle of ‘salary sacrificing’ may not sound very appealing. After all, who in their right mind would voluntarily give up their hard-earned cash. But it can have real financial benefits for some in terms of reducing your taxable income, which could see you pay less at tax time.

As we nudge ever closer to the end of the financial year, it’s worth taking a look at salary sacrificing to see if it’s a worthwhile strategy to put into place for you.

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. In essence, a salary sacrifice arrangement is when you agree to receive less income before tax, in return for your employer providing you with benefits of similar value. You’re basically using your pre-tax salary to buy something you would normally purchase with your after-tax pay.

How does salary sacrifice work?

The main benefit of salary sacrificing is that it reduces your pre-tax income, and therefore the amount of tax you must pay. For example, if you’re on a $100,000 income, you may agree to only receive $75,000 as income in return for a $25,000 car as a benefit.

Doing this would reduce your taxable income to $75,000 which could lower your tax bill because you’re essentially earning less as far as the tax office is concerned.*

This arrangement must be set up in advance with your employer before you commence the work that you’ll be paid for and it’s advisable that the details of the agreement are outlined in writing.

What can you salary sacrifice?

According to the Australian Tax Office (ATO), there’s no restriction on the types of benefits you can sacrifice, as long as the benefits form part of your remuneration. What you can salary sacrifice may also depend on what your employer offers.

The types of benefits provided in a salary sacrifice arrangement include fringe benefits, exempt benefits and superannuation.

Fringe benefits can include:

  • cars
  • property (including goods, real property like land and buildings, shares or bonds)
  • expense payments (loan repayments, school fees, childcare costs, home phone costs)

Your employer pays fringe benefit tax (FBT) on these benefits.

Exempt benefits include work-related items such as:

  • portable electronic devices and computer software
  • protective clothing
  • tools of the trade

Your employer typically does not have to pay fringe benefits tax on these.

Superannuation

You can also ask your employer to pay part of your pre-tax salary into your superannuation account. This is on top of the contributions your employer is already paying you under the Superannuation Guarantee, which should be no less than 9.5% of your gross (before tax) annual salary, though this may rise in the near future.

Salary sacrificed super contributions are classified as employer super contributions rather than employee contributions. These contributions are called concessional contributions and are taxed at 15 per cent. For most people, this will be lower than their marginal tax rate.

There is a limit as to how much extra you can contribute to your super per year at the 15 per cent tax rate. The combined total of your employer and any salary sacrificed concessional contributions cannot exceed $25,000 in a single financial year. If you exceed the cap, you could be charged additional tax on any excess salary sacrifice contributions.

Most employers allow employees to salary sacrifice in super, but not all employers will allow salary sacrificing for other benefits.

Is salary sacrifice worth it?

Salary sacrifice is generally most effective for middle to high-income earners, while there is little to no tax saving for people who are already in a low tax bracket.

If you are a middle to high-income earner, then it may be worth considering salary sacrifice to reduce your taxable income and to take advantage of some of those benefits.

Before you do, make sure you talk to us so we can help ensure it is an appropriate strategy for your circumstances.

*Note: This example illustrates how salary sacrifice arrangements can work and does not constitute advice. You should not act solely on the information in this example.

Source for all information in this article: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Salary-sacrifice-arrangements/

June 4, 2021
admin
In Financial Advice, Financial Planning, Retirement, Superannuation

Making life easier for retirees

Halving of pension minimums for FY2022

On the 29th of May, the federal government announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.

Age

 Reduced percentage factor for 2019/20, 2020/21 and 2021/22 Normal percentage factor

Under 65

 2%

4%

65–74

 2.50% 5%

75–79

 3%

6%

80–84

 3.50%

7%

85–89

 4.50%

9%
90–94 5.50%

11%
95 or more 7%

14%

The government says their aim is to make life easier for retirees by giving them more flexibility and choice in their retirement. This extension builds on the additional flexibility announced in the 2021-22 Budget.

There is no action that needs to be taken until the new financial year.

For existing clients, we will be reaching out to those of you affected by this change. In the meantime, if you wish to discuss please do not hesitate to contact us.

May 31, 2021
admin
In Financial Advice, Insurance, Latest Updates

Choosing an income protection policy

Choosing an income protection policy

MoneySmart
(ASIC)

Some of the things you’ll need to consider when choosing an income protection policy are:

Policy type

Income protection policies are provided as either an:

  • Indemnity value policy — the amount you’re insured for is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you’ll get a smaller monthly insurance payment. Indemnity value policies are generally cheaper and can be useful for people with a stable income.
  • Agreed value policy — the amount you’re insured for is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if you have income that changes from year to year.

Waiting period

This is the amount of time you must wait before your payments start. Most income protection policies offer a waiting period between 14 days and two years.

In general, the longer the waiting period, the cheaper the policy. When you’re choosing the waiting period, think about how much you have in sick and annual leave, savings and emergency funds.

Benefit period

The benefit period is how long the monthly payments will last. Most income protection policies offer two or five years, or up to a specific age (such as 65). The longer the benefit period, the more expensive the policy. But it also means greater protection if you’re unable to work for a longer time.

Stepped or level premiums

You can generally choose to pay for income protection insurance with either:

  • Stepped premiums — recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
  • Level premiums — charge a higher premium at the start of the policy, but changes to cost aren’t based on your age so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.

If you would like to discuss what income protection options are available for you, please reach out to the Sherlock Wealth team to discuss your unique situation here

May 18, 2021
admin
In Financial Advice, Insurance, Latest Updates

Deciding if you need TPD insurance

Deciding if you need TPD insurance

Total and permanent disability (TPD) insurance

A permanent injury or illness can make it difficult or impossible to return work. TPD  insurance can provide a financial safety net to help support you and your family, and pay for medical and rehabilitation costs.

What TPD insurance covers

TPD insurance pays a lump sum if you become totally and permanently disabled because of illness or injury.

Each insurer has a different definition of what it means to be totally and permanently disabled. It can cover you for either:

  • Your own occupation — you’re unable to work again in the job you were working in before your disability. This cover is more expensive and is usually only available outside super.
  • Any occupation — you’re unable to ever work again in any job suited to your education, training or experience. This cover is cheaper but has a higher threshold to claim, so it’s less likely to payout.

Read the product disclosure statement (PDS) so you know how your insurer defines a total and permanent disability. Call the insurer or your super fund if you have questions about the policy.

Decide if you need TPD insurance

When deciding if you need TPD insurance, and how much, think about the expenses you’ll need to cover if you were permanently disabled and unable to work. These could include:

  • living expenses for you and your family
  • repaying debts such as a mortgage or credit card
  • medical and rehabilitation costs
  • savings you want for retirement

Also, think about what you have that could help pay for these costs. This could include:

The gap between the amount you have and the amount you’ll need can be a guide as to how much TPD cover you may need.

If you need help deciding if you need TPD insurance, and how much, speak to a financial adviser.

How to buy TPD insurance

Check if you already hold TPD insurance through your super. Most super funds offer default TPD cover that’s cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.

You can also buy TPD insurance from:

  • a financial adviser
  • insurance broker
  • an insurance company

TPD insurance can be bought on its own or packaged with life cover. If it’s packaged, your life cover may be reduced by any amount paid out on a TPD claim. Check the PDS or ask your insurer.

Before buying, renewing or switching insurance, check if the policy will cover you for claims associated with COVID-19.

TPD insurance premiums

You can generally choose to pay for TPD insurance with either:

  • stepped premiums — recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
  • level premiums — charge a higher premium at the start of the policy, but changes to cost aren’t based on your age so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.

Compare TPD insurance policies

Before you buy TPD insurance, compare policies to make sure you get the right one for you. Check:

  • if it covers ‘your own occupation’ or ‘any occupation’
  • exclusions
  • waiting periods before you can claim
  • limits on cover
  • premiums – now and in the future.

A cheaper policy may have more exclusions, or it may become more expensive in the future.

Use our Life insurance claims comparison tool

Compare how long different insurers take to pay a TPD claim and the percentage of claims they pay out.

What you need to tell your insurer

You need to tell your insurer anything that could affect their decision to provide you with TPD insurance. You need to give them this information when you apply, renew or change your level of cover.

Insurers usually ask for information about your:

  • age
  • job
  • medical history
  • family history, such as a history of disease
  • lifestyle (for example, if you’re a smoker)
  • high-risk sports or hobbies (such as skydiving)

If an insurer doesn’t ask for your medical history, it may mean their policy has more exclusions or narrower policy definitions.

The information you provide will help the insurer to decide:

  • if they should insure you
  • how much your premiums will be
  • terms and conditions for your policy

It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to decline a claim you make.

Please reach out to the Sherlock Wealth team to discuss what insurance cover you may need here.

MoneySmart
(ASIC)

May 6, 2021
admin
In Divorce, Financial Advice, Financial Planning, Investments, Self Managed Superannuation, Superannuation

Making a super split

Making a super split

Separation and divorce can be a challenging time, often made all the more difficult when you have to divide your assets. So how do you go about decoupling your superannuation?

In years gone by, superannuation was not treated as matrimonial property, so divorce settlements typically saw the woman keeping the house as she generally had the children and the man keeping his super. In a sense, neither party won. She ended up with a house but no money for her retirement while he had nowhere to live but money for his later years.

To remedy this situation, since 2002 super can be included when valuing a couple’s combined assets for a divorce settlement. After all, these days super is probably your second largest asset after your family home.

While super is counted in the calculation of the total property, that does not mean it is mandatory to split the super – the choice is yours.

Unlike the early 2000s, both partners are likely to have superannuation these days although traditionally women will still tend to have lower balances.i On average, women retire with just over half the super balance of men and 23 per cent of women retire with no super at all.

As a result, many divorcing couples may end up splitting super along with their other property.

How to split your super

If you decide to split your super, then you have three avenues, but keep in mind that all require legal advice.

The three ways to split your super are:

  • A formal written agreement that both you and your partner instruct a lawyer stating you have sought independent advice,
  • A consent order, or
  • A court order.

A court order is the last resort if you can’t agree on a property settlement.

You can split your super as you choose both in terms of the amount and the timing. You can split it as a percentage or as an agreed figure and you can choose to split it immediately or at some time in the future. Much will depend on each of your life stages.

But whatever you decide, you MUST comply with the superannuation laws. Money received from your partner’s super must be kept in super unless you satisfy a condition of release. You also need to be mindful of taxable and non-taxable components and divide them equally.

How does it work?

Say the superannuation balances of a couple is $500,000 with John having $400,000 and Susie $100,000. If the property settlement on divorce was decided as a straight 50:50 split and it included the super, then John would need to give $150,000 of his super to Susie.

Susie would nominate a fund and the money would be transferred.

If you have a binding financial agreement or a court order, this transfer of assets from one fund to another will not trigger a CGT event. But if you don’t have such an agreement, then John would trigger a CGT event on the $150,000 he transferred. Susie, meanwhile, would have the advantage of resetting the cost base on her received $150,000. So, a win for Susie, but not for John.

If John happened to be in the pension phase but Susie was still too young, the money that is transferred from his super to Susie will be treated according to his situation. As a result, Susie would be able to access the money before she reached preservation age.

What about SMSFs?

If you have a self-managed super fund, the situation could get a little more complicated as you have to deal with the issue of trusteeship.

If there are only two members/trustees in the fund and Susie chose to leave, then John would either have to find a new trustee within six months or change to a corporate trustee where he could be the sole director.

Assets within an SMSF can also prove an issue, particularly if a sizeable proportion of the fund was tied up in a single asset such as commercial premises. How easy would it be to sell the premises? What if the property was John’s business premises and the means by which John was in a position to pay Susie child support? These are questions that need addressing.

If you are in the process of divorce or considering it, please reach out to the Sherlock Wealth team here to help you plan your finances before and after the event.

i https://www.afr.com/companies/financial-services/women-less-than-equal-in-retirement-20201203-p56khb#

 

April 22, 2021
admin
In Financial Advice, Financial Planning, Self Managed Superannuation

Should you include your children in your SMSF?

Should you include your children in your SMSF

Almost anyone can set up an SMSF together. SMSF’s can have up to four members. There is a proposal to increase this to six but at the time of writing this legislation has not passed.

Usually, members are all in the same family, although it is possible to set up an SMSF with other people.

So is it a good idea to add your adult children to your fund? Here are a few thoughts that might help you decide.

The benefits of adding your children to your SMSF

Larger investment pool and greater diversity

By adding your children to your SMSF you increase the amount you can invest. This means that you can diversify the SMSF portfolio even more, potentially including assets that typically have a higher minimum investment level such as property.

Passing down assets may be easier

Rigorous estate planning is essential for any SMSF, but with a careful strategy, adding your children to your fund could help pass down wealth smoothly. Their understanding of money management may also be improved by having oversight of your finances from an early stage.

Lower costs

By adding more people to your super fund, you may be able to reduce the average running costs of the account and avoid paying multiple fees.

Potential downsides of adding your children to your SMSF

Differing priorities

It could be difficult to figure out exactly how to structure your SMSF since the investment horizon, strategies and risk appetite could differ quite dramatically between you and your children.

Family dynamics

Before you get wrapped up in each other’s finances, it’s important that you have a clear, open and trusted relationship with your children and their partners. Have a transparent conversation about what being part of the SMSF means, and make sure they know what is expected of them when it comes to decision-making and the practicalities of tax time.

To understand what the right structure is for you and your family, please reach out to the Sherlock Wealth team to discuss your unique situation here

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors

Source: TAL

April 20, 2021
admin
In Financial Advice, Latest Updates, Money

Relationship break-up entitlements when you’re in a de facto

Relationship break-up entitlements when you're in a de facto

If you’ve recently split from your partner or are simply wondering what might happen if you do, you’ll need to keep your financial wits about you. A division of assets and debts, whether they’re held separately or together, may be on the cards.

Here are some of the things to be aware of when it comes to de facto splits and your finances.

How does the law define a de facto relationship?

A de facto relationship, according to Australian family law, is where two people of the same or opposite sex live together on a genuine domestic basis as a couple. You can’t be married to each other or related by family.

If we break up, do we have to go to court?

Not all de facto couples have to divide property of the relationship (that’s your assets and debts) when they break up. However, depending on your situation, this may be the case and can be formalised between the two of you without any court involvement.

If you can’t agree though, you can apply to a court for financial orders regarding the division of property and possibly superannuation, while spouse maintenance might also be payable in some circumstances.

This must be done within two years of you splitting from your former partner, otherwise, you’ll need special court approval to make an application.

When can orders about the division of property be made?

The family law courts can order a division of any property you and your de facto own (regardless of whether you own it together or separately) if they’re satisfied of one of the following:

  • The de facto relationship lasted at least two years
  • The two of you had a child
  • One party made substantial financial or non-financial contributions and serious injustice would result if the order to split property wasn’t made
  • The relationship is or was registered under a prescribed law of a state or territory.

What does ‘property of the relationship’ include?

Property includes all assets and debts held in joint or separate names and may include things you acquired before or even after the relationship ends. This could include things like:

  • The family home
  • Cars and boats
  • Household and personal items, such as furniture, white goods, and jewellery
  • Business and property investments
  • Superannuation
  • Home loan debt
  • Money owing on credit cards or personal loans.

How is superannuation affected?

Under superannuation splitting laws, if you separate, it’s possible you’ll get some of your ex-partner’s super or that they’ll get some of yours.

However, because super is held in a trust and differs from other types of property, there are rules around when these assets can be accessed.

What this means is, splitting super doesn’t necessarily convert it into cash as it’s still subject to certain rules, which may mean that you mightn’t be able to access the money for a long time.

Other things to think about

  • What your financial situation might look like after the separation
  • What financial adjustments you may need to make
  • Your will and any other instances (for instance, super or insurance) where you may have named your de facto as a beneficiary.

Seek financial advice to help you understand the long-term outcomes of different settlement options. Please reach out to the Sherlock Wealth team to discuss your unique situation here

Source: AMP

April 6, 2021
admin
In Financial Advice, Financial Planning, Investments, Self Managed Superannuation

Is an SMSF right for you?

Is an SMSF right for you

As anyone who has joined the weekend crowd at Bunnings knows, Australians love to DIY. And that same can-do spirit helps explain why 1.1 million Aussies choose to take control of their retirement savings with a self-managed superannuation fund (SMSF).

As well as control, investment choice is a key reason for having an SMSF. As an example, these are the only type of super fund that allow you to invest in direct property, including your small business premises.

Other reasons people give are dissatisfaction with their existing fund, more flexibility to manage tax and greater flexibility in estate planning.

What type of person has an SMSF?

If you think SMSFs are only for wealthy older folk, think again.

The average age of people establishing an SMSF is currently between 35 and 44. They’re also dedicated. The majority of SMSF trustees say they spend 1 to 5 hours a month monitoring their fund.i,ii

But an SMSF is not for everyone. There has been ongoing debate about how much you need in your fund to make it cost-effective and whether the returns are competitive with mainstream super funds.

So is an SMSF right for you? Here are some things to consider.

The cost of control

Running an SMSF comes with the responsibility to comply with superannuation regulations, which costs time and money.

There are set-up costs and ongoing administration and investment costs. These vary enormously depending on whether you do a lot of the administration and investment yourself or outsource to professionals.

A recent survey by Rice Warner of more than 100,000 SMSFs found that annual compliance costs ranged from $1,189 to $2,738. These are underlying costs that can’t be avoided, such as the annual ASIC fee, ATO supervisory levy, audit fee, financial statement and tax return.iii

If trustees decide they don’t want any involvement in the administration of their fund, the cost of full administration ranges from $1,514 to $3,359.

There is an even wider range of ongoing investment fees, depending on the type of investments you hold. Fees tend to be highest for funds with investment property because of the higher management, accounting and auditing costs.

By comparison, the same report estimated annual fees for industry funds range from $445 to $6,861 for one member and $505 to $7,055 for two members. Fees for retail funds were similar. Fees for SMSFs are the same whether the fund has one or two members.

Size matters

As a general principle, the higher your SMSF account balance, the more cost-effective it is to run.

According to the Rice Warner survey:

  • Funds with $200,000 or more in assets are cost-competitive with both industry and retail super funds, even if they fully outsource their administration.
  • Funds with a balance of $100,000 to $200,000 may be competitive if they use one of the cheaper service providers or do some of the administration themselves.
  • Funds with $500,000 or more are generally the cheapest alternative.

Returns also tend to be better for funds with more than $500,000 in assets.

Even though SMSFs with a balance of under $100,000 are more expensive than industry or retail funds, they may be appropriate if you expect your balance to grow to a competitive size fairly soon.

Increased responsibility

While SMSFs offer more control, that doesn’t mean you can do as you like. Every member of your fund has legal responsibility for ensuring it complies with all the relevant rules and regulations, even if you outsource some functions.

SMSFs are regulated by the ATO which monitors the sector with an eagle eye and hands out penalties for rule breakers. And there are lots of rules.

The most important rule is the sole purpose test, which dictates that you must run your fund with the sole purpose of providing retirement benefits for members. Fund assets must be kept separate from your personal assets and you can’t just dip into your retirement savings early when you’re short of cash.

Don’t overlook insurance

If you considering rolling the balance of an existing super fund into an SMSF, it could mean losing your life insurance cover. To ensure you are not left with inadequate insurance you may need to arrange new policies.

If you would like to discuss your superannuation options and whether an SMSF may be suitable for you, please reach out to the Sherlock Wealth team to discuss your unique situation here

i https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

ii https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

iii https://www.ricewarner.com/wp-content/uploads/2020/11/Cost-of-Operating-SMSFs-2020_23.11.20.pdf

 

March 24, 2021
admin
In Financial Advice, Insurance, Latest Updates

Should I consider Income Protection insurance?

Do I earn enough for Income Protection

Income protection can be the financial safety net you need if you experience an accident or illness that means you can no longer work. A common misconception about income protection insurance is that it’s only for high-income earners, but this isn’t the case.

What is income protection insurance?

Income protection insurance is a source of income paid out to you if you are temporarily unable to work due to an illness or injury.

You can’t predict the future, but you can plan for it.

Nobody wants to consider an accident or illness impacting their health suddenly, but it’s always a possibility. As well as changing your lifestyle, an unexpected illness could mean you need to take an extended leave from work. In a 2020 report by the Australian Institute of Health and Welfare (AIHW) on an average day, 100 Australians suffer from a stroke that could leave them permanently out of work. The AIHW also reports that accidental falls were the most common cause of injury deaths. It’s tempting to think that if you lead a healthy lifestyle and make smart choices, you’ll be fine. But the reality is you can’t predict the future, you can only plan for it.

Why life insurance and income protection are not the same.

Then there’s the trap of thinking life insurance is all you need. An unexpected death is absolutely a part of life we should all plan for. But an unforeseen total or partial disability due to injury or illness is a debilitating situation that can stop you from earning a living and is equally unwise to overlook.

Do I need income protection if it’s included in my super?

Most super funds offer income protection insurance for their members which can be a cheaper option. But cheaper premiums can come with a limited level of cover. Moneysmart by the Australian Securities & Investments Commission notes that “insurance premiums through super are deducted from your super balance which reduces your savings for retirement” so it’s important to consider if separate income protection cover is right for you and your family’s needs. For more information on whether life insurance through superannuation is enough, read here.

What does income protection cover?

So, how does income protection insurance cover you? Up to 75% of your monthly income is provided for a nominated period to help keep your household up and running and provide for your loved ones while you recover. In a nutshell, it gives you the freedom to rest easy knowing you’ll be taken care of financially.

An inability to keep up with the mortgage, loan or credit card repayments can cause considerable stress when you’re unwell. It’s crucial to focus on recuperation at such a time, with full confidence that these debts can be provided for under your policy.

Your income is fundamental to achieving your financial goals, so for financial security, you should be confident that you have adequate protection and plans in place. To discuss your financial plan, or to take out cover to protect you and your loved ones if something unexpected did occur, please reach out to the Sherlock Wealth team to discuss your unique situation here

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors.

March 11, 2021
admin
In Financial Advice, Financial Planning, Latest Updates, Lifestyle, Money, Retirement

How much do I need for retirement?

How much do I need for retirement?

How much do you need to save to make sure you have enough to last throughout retirement? It very much depends on what your living costs will be after leaving work.  Find out more about how to budget for the retirement income you’ll need for the lifestyle you’re planning for.

When you plan to retire will often be determined by whether you can afford to stop working and still have enough income to maintain your lifestyle. Figures from the Australian Bureau of Statistics[1] show the majority of men (36%) and women (22%) chose to retire at the time when they became eligible to draw on their superannuation and/or the age pension. And their average age at retirement was 63.5 years.

If you’re planning to delay retirement until your super balance reaches an amount you can comfortably live on, just how do you determine what that target should be? There are a number of factors that will affect how far your money will go, including your life expectancy, how your money is invested and other choices you make for managing your income. But one of the most important steps to planning for a secure financial future in retirement is to be realistic about your living costs.

How your living costs might change

As you stop working and have more time to yourself, your routine will change and you might save on some costs as a result. Spending on transport could fall as you no longer have to commute. If buying lunch and takeaway coffees have been a daily habit while working, you could also make significant savings by leaving these out of your retirement routine. Other living expenses, such as buying groceries and clothes and paying household bills are likely to be much the same before and after retirement.

Thinking about how you’ll spend time in retirement and where you’re planning to live will also give you clues about how your spending might go up or down. If a few trips overseas are on the cards, you’ll need to allow for these occasional costs in your overall budget. But if you’re planning to limit travel to domestic holidays only, then you won’t need to allow for these expenses in your financial plan.

Start with a ballpark estimate

How much travel you plan to be doing is just one of the many daily and one-off costs taken into account in the Retirement Standard estimates for annual expenses. Updated every quarter by the Association of Superannuation Funds of Australia (ASFA), these figures can give you a rough idea of what you can expect to be spending day-to-day in retirement.

There are two estimates available, a higher one for a comfortable lifestyle and a lower amount for a modest lifestyle. As at December 2018, the amount you’d spend as a single person aged around 65 years enjoying a comfortable lifestyle is $43,317 and for a modest lifestyle, the annual budget is $27,648. The estimate for couples is $60,977 and $39,775 for comfortable and modest lifestyles respectively.

To give you an idea of how differences between a modest and comfortable budget might impact on your retirement plans, the annual travel budget is a good place to start. A couple living modestly can expect to spend approximately $2,500, with no allowance for overseas trips. On a comfortable budget, a couple can splash out more than $5,000 each year on travel, with roughly a third going towards international travel. 

The cost of lifestyle changes

Although it’s wise to build a budget based on what you expect to be doing in early retirement, your overall plan should also take into account the potential for lifestyle changes as you age. Travelling for longer periods, dining out and entertainment and taking part in sports and hobbies could taper off as you grow older. Health and aged care costs, on the other hand, could make up a larger share of your budget in the later years of retirement.

A plan to see you through retirement

Your expenses are just one side of the whole budget planning process. Taking a good look at all your retirement income options is just as important to figure out how much you’ll need and when you’ll be ready to take that step. From the age pension to the equity in your home to retirement income products such as annuities and account-based pensions, there are all sorts of ways to support yourself financially towards having the lifestyle you want.

The Sherlock Wealth Team can support you in exploring these opportunities to manage your income for your whole retirement so you can make better choices for a secure financial future. Reach out to the Sherlock Wealth team to discuss your unique situation here

Source: Money and Life
(Financial Planning Association of Australia)

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